General Motors is again looking for a way out of their money-losing European division, after losing an additional $8 billion just in the past seven years. The automakers warned last week of even more losses to come in 2017, and confirmed talks with PSA Group that is said could lead to a sale of Opel.
“What we are trying to do is fish where the fish are, or do business where the money is,” GM President Dan Ammann told investors in January. “We will continue to be ruthless in our decisions, not pursue lines of business or markets or opportunities that we don’t think can make a compelling return for us down the road.”
GM tried to unload the deal in 2009, but backed out at the last minute, saying its prospects in the area had improved.
The automaker has not made a profit in Europe since 1999. Previously, executives had hoped to break even in 2016 and said the division was on track to do just that. However, the United Kingdom surprisingly voted to leave the European Union in June, putting a damper on the plans.
Last year, GM cut its losses in Europe by two-thirds. However, CFO Chuck Stevens said on February 7 the next opportunity for the company to break even would be 2018. The company that once sought to dominate every market it could, has transformed under CEO Mary Barra. The company is now more dedicated to maximizing profit margins in North America and China.
The talks with PSA are following GM’s pull-out from Russia and Australia. The automaker no longer saw those countries as producing adequate returns on their investment. Meanwhile, in North America last year, GM earned a record profit of $12 billion.
In a statement yesterday morning, the automaker said that its ongoing alliance with PSA has generated “substantial syngergies” for both companies.
“Within this framework, General Motors and PSA Group regularly examine additional expansion and cooperation possibilities, as well,” the statement said. “PSA Group and General Motors confirm they are exploring numerous strategic initiatives aiming at improving profitability and operational efficiency, including a potential acquisition of Opel Vauxhall by PSA.”
“There can be no assurance that an agreement will be reached.”
Efraim Levy, equity analyst with CFRA Research who rates GM shares as a “strong buy,” said the company’s exploration of selling Opel is “somewhat surprising,” due to the fact that 11 percent of GM’s 2016 revenue is tied to its technology links in its European operations and given the reduced losses there.